Financial Data and Key Metrics Changes - FormFactor reported Q4 2025 revenues of $215.2 million, exceeding the outlook range of $205 million to $215 million, marking record revenue for both quarterly and annual results [23][25] - GAAP gross margins for Q4 were 42.2%, up 240 basis points from 39.8% in Q3, while non-GAAP gross margins were 43.9%, an increase of 290 basis points from 41% in Q3 [24][25] - GAAP net income for Q4 was $23.2 million, or $0.29 per diluted share, compared to $15.7 million, or $0.20 per diluted share in the previous quarter [25] - Free cash flows in Q4 were $34.7 million, up from $19.7 million in Q3, demonstrating improved cash-generating power [26] Business Line Data and Key Metrics Changes - In the DRAM probe card segment, sequential growth was achieved, driven by non-HBM applications like DDR4 and DDR5, with expectations for record DRAM revenue in Q1 2026 due to HBM strength [6][7] - The probe card segment's gross margins improved by 364 basis points to 44.5%, while the systems segment saw a decline of 50 basis points [24] - The systems segment experienced a sequential revenue increase in Q4, driven by investments in co-packaged optics and quantum computing, although a seasonal reduction in demand is expected in Q1 [12][13] Market Data and Key Metrics Changes - The company is experiencing strong demand in advanced packaging and high-performance compute markets, particularly in areas like HBM and DRAM, network switches, and foundry and logic [5][6] - The transition to HBM4 is expected to increase test intensity and complexity, driving higher probe card spending by customers [8][9] - The foundry and logic probe card market is anticipated to see increased demand in Q1, shifting from traditional drivers to data center applications [10][11] Company Strategy and Development Direction - FormFactor is focused on improving gross margins and operational effectiveness, with a target model gross margin of 47% at an $850 million annual run rate [17][77] - The company plans to leverage its Farmers Branch site to increase capacity at structurally lower costs, supporting further revenue growth and gross margin expansion [5][22] - Strategic acquisitions, such as Keystone Photonics, are aimed at enhancing capabilities in co-packaged optics, positioning the company for future growth [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued revenue growth driven by robust demand in the memory market, particularly for DRAM and HBM applications [36][37] - The company anticipates a more moderate pace of gross margin improvement moving forward, with ongoing focus on operational efficiency and cost management [20][34] - Management highlighted the importance of maintaining strong relationships with customers to capture market share and navigate industry dynamics effectively [49][50] Other Important Information - The company expects Q1 2026 revenues of $225 million ±$5 million, with non-GAAP gross margins projected at 45% ±150 basis points [28][30] - Tariffs are expected to impact gross margins by approximately 200 basis points, with ongoing efforts to mitigate these effects through customs drawbacks [29][77] - The Farmers Branch facility is on track to come online by the end of 2026, with expected capital expenditures between $140 million and $170 million over 2026 [27][22] Q&A Session Summary Question: What has driven the recent improvement in gross margins? - Management noted that actions taken to reduce workforce and improve cycle times and yields have significantly contributed to the faster-than-expected gross margin improvement [33] Question: How does the company view the growth potential in the DRAM market? - Management indicated that robust demand and strong forecasts from major ATE manufacturers suggest continued growth in the DRAM market, with a focus on expanding competitive advantages and capacity [36] Question: What is the expected output capacity before the Farmers Branch facility comes online? - Management expressed confidence in increasing output from the existing footprint, with expectations to continue improvements throughout 2026 [51] Question: Can you provide insights on the qualification process for GPUs and custom ASICs? - Management confirmed ongoing progress in GPU qualification, with expectations for revenue generation in the second half of the year, while custom ASICs have already generated multimillion-dollar revenues [82]

Summary of FormFactor's Conference Call Company Overview - **Company**: FormFactor - **Industry**: Semiconductor testing equipment - **Recent Revenue**: Trailing 12-month revenues approximately $750 million, with guidance for Q4 indicating an annual run rate closer to $800 million [6][11] Business Segments - **Probe Cards**: The largest segment, serving as connectors between test equipment and customer wafers, crucial for testing chips before assembly. Increased demand driven by advanced packaging technologies like high bandwidth memory (HBM) [6][7] - **Engineering Systems**: Focused on co-packaged optics (CPO), aiding customers in R&D and addressing power consumption issues in data centers [8][9] Market Position and Strategy - **Key Customers**: Strong relationships with major DRAM manufacturers, particularly SK Hynix, which represents 10% of FormFactor's revenue [19] - **Competitive Advantage**: Unique capabilities in high-speed and RF testing, particularly for HBM applications, allowing for high parallelism and productivity in testing [20][21] - **Future Technology**: Transitioning to hybrid bonding in HBM may require new probing technologies, which FormFactor is prepared for due to its experience with copper probing [28] Growth Drivers - **HBM and DRAM**: Anticipated growth in DRAM, particularly DDR5, with expectations to set records in probe card sales. Current market dynamics suggest a shortage in supply due to clean room constraints [55][56] - **GPU and ASIC Testing**: Increased focus on GPU testing due to long test times and high transistor counts, with FormFactor adapting its technology to meet these demands [31][36] Operational Changes - **Factory Realignment**: Recent consolidation of manufacturing sites in California and the establishment of a new site in Farmers Branch, Texas, aimed at increasing efficiency and capacity [12][14][70] - **Gross Margin Improvement**: Targeting a gross margin of 47% by 2026, with recent improvements from 38.5% to a projected 42% in Q4, driven by operational efficiencies and cost structure optimization [11][66][70] Challenges and Considerations - **Market Dynamics**: The company faces challenges from tariff impacts, which are estimated to be a 200 basis points headwind to gross margins [70] - **NAND Business**: Limited focus on NAND due to its commodity nature and lack of differentiation opportunities [54] Future Outlook - **CPO and Optical Probing**: Continued investment in CPO technologies, with expectations for significant growth in AI applications. Integration of electrical and optical probing technologies is anticipated [42][43] - **Capacity Expansion**: The new Texas facility is expected to ramp up production by the end of 2026, aligning with anticipated market demand [70][71]

Summary of Conference Call on Taiwan Technology: Semiconductors Industry Overview - The semiconductor industry is experiencing a shift towards more complex chip designs, particularly in the AI and High-Performance Computing (HPC) segments, which is driving demand for advanced chip testing [1][11][58]. - The probe card and socket markets are projected to grow steadily, with the probe card market reaching US$2.5 billion and the socket market reaching US$1.6 billion in 2024, representing approximately 17% and 11% of the total testing equipment market, respectively [52]. Key Companies MPI (6223.TWO) - MPI is ranked as the 4th largest probe card provider globally, with 57% of its revenue in 2024 derived from probe cards [10][52]. - The company is expected to achieve a revenue CAGR of 19% from 2024 to 2027, driven by increased demand in the AI/HPC segments [14][33]. - MPI's market share in the probe card market is projected to rise from 7% in 2024 to 11% by 2027 [13]. WinWay (6515.TW) - WinWay is the 2nd largest socket provider globally, generating 71% of its revenue from test and burn-in sockets [10][52]. - The company is expected to see a revenue CAGR of 23% from 2024 to 2027, benefiting from its expansion into the probe card market [14][37]. - WinWay's market share in the socket market is expected to increase from 8% in 2024 to 14% by 2027 [13]. Investment Opportunities - Both MPI and WinWay are initiated with a Buy rating and target prices of NT$1,000 and NT$1,500, respectively, implying potential upsides of approximately 41% and 54% [3][16]. - The investment thesis is supported by: 1. Increasing dollar content in the testing industry due to AI and HPC trends, leading to a doubling of average selling prices (ASPs) for probe cards and sockets [3][11][59]. 2. Local advantages for Taiwanese vendors, including proximity to leading foundries like TSMC and OSAT companies, which are expected to enhance market share [13][12]. 3. Expansion into new markets, particularly in high-margin segments like MEMS probe cards for MPI and probe cards for WinWay [14][58]. Financial Performance - MPI's earnings are forecasted to grow at a CAGR of 28% from 2024 to 2027, while WinWay's earnings are expected to grow at a CAGR of 37% during the same period [39][41]. - MPI's 2024 revenue is projected at NT$10.17 billion, with net income expected to reach NT$2.30 billion [10][33]. - WinWay's 2024 revenue is projected at NT$5.80 billion, with net income expected to reach NT$1.19 billion [18][37]. Risks - Potential downside risks include softer demand in AI and HPC markets, slower penetration into new total addressable markets (TAM), and intensifying competition [4]. Conclusion - The semiconductor testing industry, particularly for advanced chip testing, is poised for significant growth driven by increasing complexity in chip designs and the demand for faster time to market. MPI and WinWay are well-positioned to capitalize on these trends, making them attractive investment opportunities despite current market volatility.